Constructive Dismissal and Optional Retirement: The Ondevilla Case

The Supreme Court recently clarified important rules on constructive dismissal, optional retirement, and the rights of illegally dismissed managerial employees in Ondevilla v. Colegio de San Juan de Letran (Laguna) (G.R. No. 278615, June 29, 2026). The case involved a school comptroller who was demoted, then later told his contract had expired, and finally forced into early retirement. The ruling provides clear guidance on when a demotion amounts to constructive dismissal, when an employee may be considered to have voluntarily retired, and what remedies are available to an illegally dismissed employee who reaches retirement age during litigation.

The Facts of the Case

Rodolfo Ondevilla was hired by Colegio de San Juan de Letran in Calamba City in 2004 as Comptroller. He was later appointed Assistant Vice President for Finance and Controller, a position renewed every three years until its expiration on June 30, 2018. When new management took over, Ondevilla was appointed as Controller for a fixed term, which he considered a demotion that substantially reduced his salaries and benefits.

When his contract as Controller expired on August 29, 2019, Ondevilla was told to turn over his functions. He filed a complaint for illegal dismissal, claiming he was a regular employee who had been constructively dismissed. The school argued he was an independent contractor, not a regular employee.

The Issue Before the Court

The central issues were: (1) whether Ondevilla was a regular employee; (2) whether his demotion constituted constructive dismissal; (3) whether he validly opted for early retirement; and (4) what remedies he was entitled to as an illegally dismissed employee.

The Court's Ruling

The Supreme Court held that Ondevilla was a regular employee who was illegally dismissed. However, the Court made several important distinctions.

On constructive dismissal. The Court agreed with the Court of Appeals that the demotion from AVP for Finance to Controller did not amount to constructive dismissal because Ondevilla continued to work and received the same salary and benefits. Constructive dismissal requires a clear showing that the demotion was attended by a substantial reduction in rank, status, or compensation. Here, because his pay and benefits remained the same, the demotion alone did not constitute constructive dismissal. The illegal dismissal occurred on August 29, 2019, when the school treated his contract as expired.

On optional retirement. The Court ruled that Ondevilla did not validly opt for early retirement. Under Article 302 of the Labor Code, as amended by Republic Act No. 7641, an employee may retire at age 60 but cannot be compelled to retire before age 65. The Court emphasized that acceptance of an early retirement option must be explicit, voluntary, free, and uncompelled. A letter Ondevilla wrote responding to a demand for payment of a cash advance—which mentioned retirement at the end of the school year—was not an express election to retire. There was no retirement proposal from the employer for him to accept or decline.

On separation pay. Because Ondevilla reached the compulsory retirement age of 65 during the pendency of the case, reinstatement was no longer feasible. The Court awarded separation pay in lieu of reinstatement, citing Laya, Jr. v. Philippine Veterans Bank (2018), an en banc decision that prevails over the later division ruling in Sampana v. The Maritime Training Center of the Philippines (2024). Under Article VIII of the 1987 Constitution, only the Court sitting en banc may modify or reverse a doctrine laid down in a decision rendered en banc or in division.

On retirement benefits. The Court confirmed that Ondevilla was entitled to retirement benefits under Article 302 of the Labor Code, equivalent to one-half month salary for every year of service, having served CSJL for 15 years.

On CBA benefits and tax refund claims. The Court held that managerial employees are generally not entitled to benefits under a collective bargaining agreement. An exception exists when the employer extends such benefits as a matter of established company practice, but Ondevilla failed to prove such practice. The Court also ruled that disputes over the withholding of taxes under the TRAIN Law fall under the jurisdiction of the Commissioner of Internal Revenue, not labor tribunals. Citing Victoria Manufacturing Corporation Employees Union v. Victoria Manufacturing Corporation, the Court explained that labor tribunals only have jurisdiction over labor disputes, not tax matters.

Practical Takeaways

• Demotion alone is not always constructive dismissal. If the employee continues to receive the same salary and benefits, a demotion in title or rank may not amount to constructive dismissal.
• Early retirement requires explicit consent. An employee cannot be considered to have voluntarily retired unless the acceptance of an early retirement option is explicit, voluntary, and uncompelled. A passive reference to retirement in a letter responding to another matter is not enough.
• Separation pay is available even after retirement age. An illegally dismissed employee who reaches compulsory retirement age during litigation may still receive separation pay in lieu of reinstatement, in addition to backwages.
• Managerial employees generally cannot claim CBA benefits. Unless the employer has an established practice of extending such benefits, managerial employees are barred from receiving benefits negotiated by a union they cannot join.
• Tax disputes belong to the BIR, not labor tribunals. Claims for refunds of withheld taxes must be filed with the Commissioner of Internal Revenue, not the Labor Arbiter or NLRC.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.